One wonderful thing about owning a hotel is that the business has on-site managers to handle the day-to-day details. Your role as the owner is to inspire confidence, drive results, set and communicate expectations, and oversee the business.
Almost all women-owned businesses are sole proprietorships with few or no employees. The woman who owns the business is also the everything from sales to production to bookkeeping. As a result, the business may generate income but it never builds value. This format means that the owner can never scale the operation and will always be pressed for time.
In contrast, a hotel has a general manager who runs the business on-site and employees who clean, maintain, sell, cook and interact with guests. Often there is also a management company with the expertise to oversee management and optimize business results.
As the owner, you have oversight for the operation. Management handles the day-to-day functions of the hotel. But you have the important role of setting expectations and demanding performance. This is not necessarily a time-consuming role, but it is important because you optimize results.
As the owner, you are also responsible for the overall asset, which includes making major near-term and long-term decisions. You decide when the hotel needs capital improvements (management will advise you on this too). You decide when it is time to sell. These decisions follow the plan you develop for the asset. You review and adjust the plan periodically. Your role is to optimize returns for your investors and yourself.
Owning operations
As an owner, you work with the people and companies who take care of the day-to-day operation of your hotel. Some of your most important decisions will be how to structure these relationships and who to include on your leadership team.
Some owners learn the nitty gritty details of cleaning rooms and checking guests in, at least until she in confident about the on-the-job elements of hotel operations. Others take more of an oversight approach. In either case, you should check on the hotel nearly every day (don’t worry, you can delegate this when you go on vacation.) Checking on the hotel can include:
- Reading the daily report: these hotel revenue statistics from the prior night should be in your inbox every morning
- Reading the STAR reports: this comparison of the components of your hotel’s room revenue to its competitive set’s room revenue will be in your mailbox at least weekly and you should understand how to analyze it and review it with your general manager
- Talking to the general manager by phone: the most successful owners, including large scale operators, check in with their general managers regularly; this may be daily when the hotel is ramping up, daily or weekly when the hotel is stabilized depending on your form of management, and whenever something unexpected (good or bad) happens
- Walking the hotel and attending a staff meeting periodically: this may be a few times a year if you have a management company; it could be weekly or monthly if you are overseeing a manager directly
- Being respectful of the hotel’s hierarchy: you should be interested in the team members you see when you are on property and talk to when you call the hotel. You are an important person to them. If you know their names and show that you care about how things are going for them on-the-job, it bonds them to you and your goals. But be careful to run all decisions and suggestions through the general manager – you do not want to undermine the chain of command or the terms of your management contract
You are responsible for making sure that the general manager is competent and motivated, has the tools needed to do the job, and has the hotel performing well. Your role in that regard includes screening the general manager candidates, making needed tools available, and monitoring performance. This includes the money to operate the hotel and licenses and permits to keep the business open. You make the decisions about keeping or replacing the general manager or management company. All the detailed decisions that go into operations including staff hiring and firing, purchasing, marketing, etc. are handled by the general manager and operating team. You should have input with members of the executive team (general manager, director of sales, etc.).
The owner engages with the business in other crucial ways.
- Confidence and security: Hotels are service businesses so the way employees feel about their jobs is critical to the hotel’s success. Employees who feel valued and have confidence that their jobs mean security for their families are positioned to welcome guests and provide excellent service. If they feel insecure or angry or fearful, service levels and the business will suffer. As the owner, the presence you project, your attitude and your communication set the way employees feel and perform.
- Financial management: Generating financial reports is a standard function of hotel management systems. Understanding and interpreting those reports – using them to make good decisions for the business – is the job of the owner. You negotiate and approve the operating budget that is used to evaluate performance and the capital budget used to maintain and upgrade the facilities. The owner is also responsible for reporting to investors and making sure that lenders and franchisors and other stakeholders get their reports and the right interpretation of the information.
- Key stakeholder relations: Key stakeholders include investors, lenders, the brand or franchise, management company decision makers, local government leaders, and others. As the owner, you make sure that key stakeholders receive the information they are due. You also keep positive relations between your hotel company and stakeholders. Hotel management will file standard reports, but as the owner, you define the relationships.
- Franchise relations: You will be the franchisee and have top level engagement with the brand although day-to-day communication is usually routed through the management company if there is one. Your role is to oversee management’s work with the brand so that your quality assurance reviews meet your expectations, and so that the hotel gets the most benefit from brand marketing programs. You also need to keep track of brand initiatives so you can be prepared for required changes. Management and the brand should provide the information to make this simple.
- Evaluating management: Whether you engage a general manager or work through a management company, as the owner, you evaluate management. This is defined to some extent by your contract with management. It is also a financial evaluation and a performance assessment that includes customer satisfaction, brand relations, employee relations, asset condition and every other aspect of the operation.
- Drive: Businesses need a foot on the gas and that is a crucial part of your role as owner.
Engaging management
You have two choices about how to manage your hotel. You can directly oversee management, or you can hire a management company. Optimizing the operation of a hotel requires sophisticated skills, tools, and resources in a number of disciplines. Some, but not all, of those disciplines are listed below. While this list might be similar for other industries, the skills, tools, and resources needed are specialized to the hotel and restaurant industry and are increasingly complex. They may not be applied easily from other industries. Therefore, having hotel expertise on your team is critical.
- Recruit, screen, hire, train, motivate, and discipline employees and handle payroll, benefits, and statutory compliance
- Run all operational departments including front office, housekeeping, sales, maintenance, food and beverage, accounting, other operated departments
- Manage relationships and billing with vendors
- Establish and enforce quality and service standards
- Deliver revenue management directly or through the brand, adjust room rates and run promotions
- Undertake on-going analysis of revenue and expense data reporting
- Establish and enforce financial control policies
- Perform preventive maintenance on the property and recommend capital expenditures
- Provide technology resources to the staff
- Develop budgets and produce financial reports for owners
- Curate the hotel’s online presence (reviews, social media) and implement marketing strategies
- In some cases, coordinate renovations or expansions
Managers: Hiring a general manager and directly overseeing operations gives you the most control over your hotel. It also removes the cost of engaging a management company. But you might not generate the same revenue without the management company’s central revenue-generating team. Consider the savings together with the revenue component. You assume the risks of operation the hotel. Additionally, you are responsible for the functions, tools, and resources a management company provides. These include oversight of management, oversight of marketing plans and sales efforts, budgeting, planning for capital investment, accounting and bookkeeping, filing government reports, sourcing purchases, passing inspections, overseeing employee management, and so on.
If your general manager doesn’t perform, you are responsible for making the replacement. When your general manager goes on vacation, your assistant manager or other managers will operate the hotel, but the operation will take additional attention from you. If you have a background in the hotel industry, hiring a manager may be practical. If you don’t, having third-party management expertise may be beneficial. For this reason, some franchises require new hoteliers to engage management companies, at least for the first few years.
If you want to “go it alone”, also consider how you can attract and retain the best leadership staff because you can’t offer them the career advancement that a multi-unit operator can. Third-party operators can access experienced hotel professionals for permanent or temporary (task force) staffing because they can offer career, training, and development opportunities.
Management Companies: These third-party (non-branded) operators provide day to day management services as well as support in accounting, HR, marketing, revenue management, purchasing, etc. from their central office. Some have expertise in managing resorts, extended-stay hotels, limited-service hotels, or boutique hotels with lounges. Services offered by management companies can be customized. Management companies operate multiple properties and may provide economies of scale for purchasing. They may provide full management to some hotels and consulting services or limited support to others.
These and other functions are normally undertaken via a combination of hotel and corporate staff, but it is the management company’s responsibility to ensure that it is all executed as needed. The right operator will provide best practices, reporting, and policies which an owner would have to develop, document, and implement if it self-operated the hotel. While many owners self-operate their hotels, and some are very well-operated, eventually they have to provide the “corporate” supervisory skills of a multi-unit hotel operator to be as successful as possible, even for just one hotel.
Considerations in selecting a third-party management company include:
- Do they manage multiple other hotels like yours – similar quality, same brand, similar size or complexity, and/or geographically close so they can support each other. How successful are these hotels
- Do they provide the services you want – expertise in maintenance and repairs, strong regional sales support, revenue management, restaurant/lounge operational success, etc.
- Are they responsive – customer service is critical and so is response time dealing with you and the brand and other entities like local government
- How effectively do they staff their hotels – including staffing levels, turnover, training, HR support, employee satisfaction, customer service reviews, costs
- What is their corporate or regional staffing in the disciplines for your hotel – Do they have enough experts in each discipline to adequately cover the number and type of hotels in their portfolio
- What are their profit margins at similar hotels – What are their methodologies for cost controls, reporting and revenue management
- How do they handle owner relations – Check on owner satisfaction with other clients – some companies require owners to be hands off, others permit owner participation
- How are they compensated and incented – do they deliver for owners
Comparison shop management companies and include interviews with other owners in your selection process as well as secret shopping of hotels that they operate which are comparable with yours
Management Contracts: The relationship between the hotel, the owner and the management company is governed by a management contract. These are legally complex and detailed documents and have long-term implications for the asset. Hotel attorneys and asset managers specialize in management contracts and it is valuable to work through negotiations with a specialist. Key items to understand are:
- Term: an agreement should be long enough that the operator is interested in managing for the best interests of your business, rather than short-term gains. But the agreement should be short enough that you can make changes within a reasonable time if necessary. Management agreements used to run for 20 years or more. Now they are likely to be five years or less for operators that aren’t captive with a major brand or franchise. They use potential extensions to allow the owner and operator to continue their relationship over the longer term. Exiting a management agreement used to be so difficult that a sharp shift in the industry was necessary. Now termination terms are expected to be reasonable, some are based on performance (with no additional fee to the owner) and others are “no-fault” discretionary options (with an additional fee to the owner).
- Fees: Base and incentive fees are common. Creating a mutually beneficial scenario with fees is highly nuanced and benefits from expert advice. Management companies are commonly paid a base fee that is a percentage of revenue. In addition, they are typically paid a percentage of the net profit as an incentive fee. The idea is that earning a percent of revenue encourages management to increase revenues while the percentage of net profit aligns management company interests with the owner’s interest in keeping expenses down and maximizing the hotel’s profits and value.
- Centralized services: Commonly including accounting and revenue management, shared services can also incorporate recruiting and training, technology and systems support, engineering, sales and marketing support, risk management, HR, legal support, purchasing, etc. The hotel should receive a net benefit from any central services provided. The service provided by the management company should be less expensive and/or higher quality than purchasing the same service elsewhere.
- Performance: Standard practice includes performance tests built into the agreement. Internal benchmarks like actual versus budgeted GOP are one category. External benchmarks comparing the hotel’s revenue performance to other hotels using data from outside sources like STAR Reports are the other. Performance tests on other goals or metrics of importance to the individual owner can also be layered into the agreement.
- Clarity: Understand the contract thoroughly and understand who is responsible for what. You, as the owner, have the ultimate responsibility to make sure that the management company performs so be sure to avoid any gray or non-specific language in the agreement because it will surely benefit the operator, not the owner. “Inspect what you expect” but put it in the contract too!
Asset Management
Hotel asset managers are experts who represent your interests as the owner and are mission-driven to help you achieve your goals for this investment. These are their functions:
- Alignment: Hotel managers are interested in their own remuneration, benefiting the management company for which they work, and – if brand-owned – in the growth and protection of the brand. Asset managers keep the focus on the owner’s interests.
- Big picture: Operators get very focused on day-to-day operations. Asset managers look at larger issues from insurance to capital expenditures and long-term strategies making sure that the overall business interests are optimized.
- Numbers: Asset managers dig into the detail behind every aspect of the financial statement to so costs are effectively controlled but enough money is spent where needed to optimize the operation over the time that the owner expects to own the hotel.
- Balance: Management generally knows more about hotel operations than the owner. This creates an imbalance and puts the owner at a disadvantage with regard to budgeting, analyzing performance metrics , accepting excuses for failed performance, etc. Asset managers bring best practices and level the playing field because they have hotel operations and hotel investment experts on staff. Achieving balance also includes setting realistic expectations for the owner if she lacks the experience to understand the manager’s plan or is skeptical of their assumptions.
- Advocacy: Your input as owner is needed throughout the year in myriad ways; the asset manager is sounding board, advisor, and advocate.
- Challenge: The extra expert set-of-eyes should be the kind of active oversight that encourages improvement. The owner can do this but sometimes an asset manager can be more impartial and consistent and can work with the owner and management to get better results.
- Personalization: Your hotel is a bit different than any other. Management companies and brands thrive on consistency; creating standardized systems implemented at all their hotels is understandably very efficient for them. However, the most efficient system on average may not be optimum for your hotel and an asset manager helps the manager think creatively and adapt its policies and procedures to your particular asset, if possible.
